>> rose: welcome to our program. tonight, the phenomenon of social networks. facebook alone, 500 million users, what does it mean, and where is it going? we talk to ken auletta, david kirkpatrick, and michael malone. and in washington the gavel passes to a new speaker of the house, we will talk to bryan williams who has interviewed john boehner. and finally, the job numbers and the economy, we talk to steve pearlstein of the washington post. facebook, a new leader in washington, the economic recovery, and the search for new jobs when we continue. >> funding for charlie rose was provided by the following.

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captioning sponsored by rose communications from our studios in new york city, this is charlie rose. >> rose: our subject this evening is social networking, over the past decade social networks have transformed our culture, and changed how we communicate. they have also become big business, facebook the largest social network has quickly grown from a dorm room experiment into a global phenomenon. the company has over 500 million users worldwide, and is now valued at $50 billion, following a $450 million investment from goldman sachs. the story of facebook was dramatized in one of this year's most highly regarded films, the social network. here is a look. >> that looks good, that looks really good, clean and simple,. >> relationships.

this is what drives life in college r you having sex or aren't you? it is why people take certain classes and sit where they sit and do what they do and have some center, that's what the facebook is going to be about, people are going to log on because after all the cake and watermelon there is a chance that may get lid and meet a girl, that is really good. >> and that's it. >> what do you mean? >> it is ready. it is? right now? >> yes. you have no idea what this is going to mean to my father. >> sure i do. >> facebook founder and ceo mark sucker burgh recently appeared on 60 minutes where he discussed the future of future networking .. when i was getting started with my roommates in college, you never think that you can build this company or anything like that, because i mean we were college students and just building stuff because we

thought it was cool. >> i do remember having the specific conversations with my friends where we thought, you know, someone is going to build this. one is going to build something that makes it so people can stay connected with their friends and family, but no way would we be the ones who were contributing to kind of leading the whole internet in this direction. >> say you want to buy a car, you can type prius on google and get publicly available information, or you can type prius on facebook and get personal advice about it from your friends. >> are you trying to turn everything we do on the web into a social function? >> i think what we found is that when you can use products with your friends and family and the people you care about they tend to be more engaging. i think that we are really going to see this huge shift where a lot of industry is, and products are just going to get remade to be social. >> it is already happening. this year, people spent more time on facebook than on google. >> joining me now is ken auletta

he writes the annals of communications column for the new yorker magazine, also from stanford california, michael malone, he is a veteran silicon valley journalist and author from the consumer electronic show in las vegas, david kirkpatrick, he wrote the facebook effect, i am pleased to have all of them here on this program to talk about this fascinating subject. i will begin with ken auletta, so why are we all talking about social networks and facebook? >> because it is changing the world, just as google did, just as apple did, if you talk about a company that has over 500 million users around the world, more outside of the united states than in the united states, and every advertising agency or marketing agency is talking about how do we make our products viral and get on social networks platforms and how do we get people to voluntarily talk about us? if you talk about people and they say i can do search on facebook rather than google, and i can get my news on facebook with links to my friends rather than newspapers,

it is having a profound impact on many different media businesses and the fact, the way people behave. >> you wrote the book about-face book, david, why is it now getting so much attention? >> well, i would agree with everything ken said but, you know, it is really causing people to behave differently and as ken pointed out literally around the world. but the reason it is happening right now i think is goldman investments has basically made it impossible for american adults to dismiss facebook, which believe it or not despite its scale up to this moment a lot of people have done. but i think people are realizing goldman sachs says this company is worth $50 billion i have to pay attention to it and a lot of people have spent the last few days and weeks by catching up and saying, man of the year, 50 billion, this thing is real, i really didn't think it was real, but i have to admit it is. >> rose: michael, tell me what it is that interests you about-face book and the phenomenon of social networks. >> well, one thing is, it is actually now one of the largest

phenom ons in human history, one of the largest human aggregations we have ever experienced. i can't think of very many other things that reach 500 million people. coca-cola, kentucky fried chicken, maybe. that is -- if facebook was a sovereign nation it would be the third largest in the world, that is something we never have seen before. the fact that it is an independent entity that has its own internal culture and is literally changing the way people behave, especially young people, my 15-year-old facebook is now his portal to the internet, to all communications. he has shifted from instant messaging, everything else to facebook, facebook is now his doorway into the world. >> rose: and what implications does that have? >> oh, i think it has some huge ones, and by the way, i think the goldman announcement may actually turn out to be an albatross around facebook's

neck, i mean to predict a company to be that valuable almost forces facebook to take some interesting moves over the next couple of years, like forcing it to go public. like forcing it to monetize its operations perhaps faster than it is capable of doing. it sounds very exciting and obviously facebook is the hottest company in the world right now, but when you get that big and you start making $50 billion pro announcements all of a sudden governments start looking at you and all sorts of things. they may regret this announcement this week. >> rose: you will have to google on that, ken. >> well, you know, they can't void going public. i mean the same thing happened to google, google in 2004 did not want to go public when they did but once you have -- you have reached the sec threshold of 500 shareholders you have to go public. and they are reaching that this year. they predict. >> rose: mark zucker. rburg, tell me about him and why many of us seeing the movie and on 60

minutes and that two parter, what is it about mark and the decisions he has made that have put facebook in this envious position? >> well, there are a number of things, mark is a very unusual person, and one of the things that makes him so unusual is that he really isn't doing it for the money, and this is -- you know, i think it is interesting he wanted this goldman deal, because this is something very new for him and the reason he is interested in having facebook be perceived as so valuable is because, in fact, it does achieve a number of strategic objectives for facebook which we can talk about, but because i don't plea exactly with what michael and ken just said but basically, you know, mark wants to change the world, i mean, i say this a lot and people think i am sort of just some kind of shill, the weird thing he he is only 26 he doesn't really need the money, he sees himself having creating among other superlatives the fastest growing company in terms of customers in human history and he realizes the growth isn't about to stop if he keeps doing the right thing and his

aspiration is to make it available to as many people as possible on the planet. he looks at over 600 million now, he looks at 7 billion on the plan met and says why can't we get a lot more of them and try to get as many of them as possible. >> rose: well, tell me about the uses of social networks that will expand into the future, and where are they -- where are they going that will have the kind of consequences you are talking about? >> well, i mean, facebook's vision is basically to make everything we do more social, and it is actually important not even to think only just about the internet when you are thinking in those terms, because if you think about the way we use facebook and this is extremely evident here at the consumer electronics show we are using it more and more in our mobile device, that means we will basically have it with us everywhere we go, which means, in effect we are bringing our friends with us throughout our lives in a way we never could have conceivably been able to do before, so there is an amazing range of things that are going

to be able to do because of that. like for example, you are going to, even in the grocery store you might be able to say well which of my friends -- did they like, you know, this kind of cereal or that kind of cereal? you can't do that today but i wouldn't rule out that sort of thing, not to mention just all of the various forms of communication that are happening by aggregating our friends in different ways around our common interest it is way we search for information on the internet is going to radically shift and it is already been incorporated in microsoft's binge search engine through a deal they have with facebook. there are innumerable ways, the way i call my book the facebook effect is because the effects are throughout the realms of politics, media, marketing as ken pointed out, it is really an exciting company to think about because i its ramifications areo broad. >> rose: what does sandberg add to this company. >> management, among other things, she is a greenup, 40 years old, now 41, came from

google, a lot of experience not in just managing a company and managing ad sales for google but also chief of staff to larry summers treasury secretary and a broadly educated grownup who has real management experience and he didn't have that. >> rose: you know google well, you know silicon valley well and microsoft well, do they worry about-face book and fear facebook? >> totally. i mean, think about it. i mean, first of all -- >> rose: i was coming to that. >> there was a point in time where microsoft, everyone feared microsoft and then everyone feared google and now all of a sudden everybody is fearing facebook. >> rose: fear what? >> fear their dominance if you are spending time on facebook that's time you are not spending not just on google but on microsoft, maybe, but you are not watching a cbs show and maybe not reading a book and maybe not reading a newspaper, you are not spending time -- maybe you are not going and hanging out in the mall, so you are -- now you create your own malls, but nevertheless, if you are an existing company, it

takes mind share away and if you are an internet based company like google is suddenly you are spending all of your time on planet facebook, not in the realm of the google university. >> rose: what do they plan to do about this? >> they have never succeed in creating a social network, they have one called ocurt which has not been very successful and tried various things without much success and the argument is they don't have the social networking genius gene, whether that is true or not, they have so far failed to do it and terrified of it. i mean david pointed out you can do a search on facebook why to you need google. >> if i go to facebook and eight people i know say buy this camera why do i need 8,000 answers from google? >> rose: and you trust your friends. >> yes. and giving big bonuses from google, he was trying to keep them from running down the street to facebook. yes, he is absolutely scared to death of facebook. >> this is the way to think about the $50 billion evaluation

it has everything to do with the fact this incredible speed google has -- and others but especially google have created these gigantic adversaries for facebook that the company now despite its relatively small scale in actual fact has to come back and all of the companies that hate facebook have tense of billions of dollars in cash and that includes especially google, and facebook now will have a billion or so in cash to move it quickly to buy something if it needs to do that defensively and also have a stock that is valued so if they want to make an acquisition with stock, they have a currency they can say hey goldman says it is worth this, that is a huge thing that they can use to move to compete with google, because it is all about quick, quick response and acquisitions of people, of products, and companies. >> michael, go ahead. >> i was going to say, david, i think, ken, you will agree with me, something very profound happens when a company goes public, it changes. and i think it is great that

facebook brought sheryl in to have some grownups around to get them through this, but most companies that are phenoms like this when they have the ipo they have no idea what is about to hit them, and they literally changes the culture and throws them into absolute shock for a year or two. the money sounds good and the added liquidity to go into new markets and fight these challengers, but i am not sure facebook has the sufficiently strong culture yet inside the company to deal with an ipo. >> i would extend michael's point in the following way that you are dealing with an engineering culture, and engineers are very good at things this they can measure an don't know how to measure fear, there is no quantification for that. so suddenly when you are public and you are out there and everyone is worried about issues like privacy and copyright and dominance, you know, suddenly they have got to deal with governments all over the world, engineers are not equipped as google proved to deal with those kind of issues, now sheryl sandburg is, she knows that

world but this is a company, she is not the culture of facebook, the culture is an engineering culture so one of the issues to pick up on michael's point is you are suddenly deal with the a big government, not only u.s. government but governments all over the world. >> i want to hit on the issue of ipo's, i don't think they are going to go public there is no reason they have to go public, all they have to do is make their financials transparent, mark has specifically said to me at point in the past, that facebook might decide to be the most transparent company in history, and what the sec requires is not an ipo but if you have 500 shareholders it means you publish all of your financial data as if you are public. i have tested this prediction in the last couple of days with people close to the company they agree this is a very good possibility is that mark will not take it public, but will just start telling all of the financials as if it was public, but i also quickly want to say i totally agree with ken that the government issue is unavoidable

massive challenge of regulation that they have to face because of the ambitions they have are so big and governments are starting to tune in to how big the ambition, and governments don't lay zero over and play dead when this happens. >> we have seen this happen over and over again you reach a certain size no matter how benign you are and how up, positive and pro, you know, your culture, your nation you are, the government starts going after you because you represent a threat to their sovereign entity, and if the justice department of the u.s. doesn't go after you the europeans are always waiting. we have watched as microsoft got hammered by the government and gates made a terrible mistake of trying to fight them, and ended up on the carpet, intel got it at the same tame and andy, andy grove did a major mea culpa and avoided getting hammered and google got attacked by the europeans and facebook is a bigger elephant in the room than those guys, you just have got to know that the european union is

already looking at facebook. >> well the european union is much more concerned about privacy issues than we are here in the united states, which is obviously facebook privacy issues come to the fore, but beyond that, as david pointed out and david really knows facebook as well as anyone on earth, what -- as he pointed out, mark want to change the world, well, chinese government doesn't want to, want to be changed, the iranian government doesn't want to be changed so suddenly you are going to confront -- google found this out, google said all information should be free and available to everybody and china what do you mean all information should be free and available? so that is one of the other things. >> rose: so how does mark want to change the world? what do you mean when he says he wants to change? david, you say he wants to change the world. >> well, okay, let me just tie this to the question of government regulation. if one of the things mark is trying to do is give people this incredible identity on the internet, facebook is basically trying to become the ultimate repository of identity

information about all of us, and if you think about who has historically played that role, it is government. so there is absolutely no question governments don't like that because they want to give you the passport, they don't want facebook to do it and in fact they are moving in the direction to do it more effectively for many activities than government, but what marks want to do is empower individuals, and i think that is what the entire internet is about and has been about, i think mark from the beginning of facebook's history recognized that is what the internet is about and basically consciously constructed the company in order to make that happen even faster. so facebook is about giving individuals a broadcast platform that they have never had before to express their views, whether to their friends or to the whole world and twitter has a lot of the same qualities too so we shouldn't leave them out of the equation but he wants to make people more powerful and have more control and awareness and share better and have more effective life. >> rose: why is there only one facebook? why haven't more been more successful imitators?

>> well, i mean, network effects is the simple reason, there are businesses that are communications based, almost always work better the more people who use them, so each new member effectively makes it better for everybody else. you want everybody to be there or else you don't want to be there. so if facebook were to be replaced with something it would only really happen if everybody sort of moved in enemas to the new thing which is relatively unlikely, face book is becoming like the telephone system in that respect. >> rose: yes. see that is an amazing statement. >> it is true. we had a proto facebook called myspace and it basically alienated its users and open the opened the door for facebook the come in and charlie you also forget there are probably 200 or 300 other sizable social networks sitting out there, none nearly the size of facebook. but already other worlds, one we should all look at closely is linked in. >> rose: tell us about linked in. >> that is probably going to be the first big web 2.0 ipo, reid

hoffman is moving rapidly toward it and it will be the kanneh irrelevant in the coleman and let us, coal mine, reid knows exactly what he is doing, and linked in, of course, is the network of professional people, and it has been feeling its way around, how do you go beyond just swapping business cards? to actually aggregating people on projects, starting companies, that sort of thing. and i think reid is moving very quickly towards creating the virtual corporation, the protean corporation where people operate as workers out in a cloud and just aggregate together on projects. >> rose: see, that is what i want to get at michael, where is this thing going in terms of what -- where facebook is going but also linked in and other people who are in the business of networking different kinds of groups? >> i think business wise, i

think you are seeing new ties to business organizations, i think we are going to increasingly see companies being in a sense like face book, very small physically but existing in a gigantic cloud of customers and talent that is used as needed. >> and so it changes a corporation, social networks. i think human interaction, we are seeing a growing number of geography based social networks that have to do with, you know, your local restaurants, local events. >> rose: right. >> there is a new one where you can leave a postcard at the restaurant or store you were at for future people to come by and find out you were there. there are a lot of those type of networks. it is restructuring, in a way we are going back to almost a prehistoric tribal structure, we have our friends, and we interkt, interact with them all to the time and now where they are all the time and it is a very exciting new world that is emerging from all of this. >> in reality, i agree with everything michael just said but, you know, in reality a lot of these new social networks are building on top of facebook's

platform which is one of the very powerful things it has done, is extend the tools so other people can use the identity they used in facebook, linked in is important, two things are very much like facebook but unique, to the only other truly global network number one and the only other major social network that is based on real identity. and those two things are huge. i think this 50 billion valuation for facebook is going to allow linked in to have a valuation vastly greater than it would have had otherwise and i think it will go public at a minimum of $10 billion valuation which is one of the biggest in human history and it will be merited because, you know, those 90 million people that are on linked in just aren't people, those are business people, those are real valuable tangible people with tons of data about them that can be marketed to and be leveraged for management in some of the ways michael was suggesting. it is very important.

>> it is important, but i approach it with a little skepticism in the following sense. i think it is wonderful that my nephew has -- is on facebook all the time, but on christmas day, hey, put it away, be social, talk, read a book, talk to a real person. and there are concerns about what this telephone, something has replaced the telephone is what it has done to our socialization skills and concerns about privacy issues that are really worth discussing much more fun fully, because i don't want to leave my privacy issues to an engineer who believes only in transparency, isn't it wonderful these young teenage girls are sharing all of this information, well it is wonderful today but when they seek a job in ten years it may not be so wonderful to them, and i think there are real issues we have to wrestle with here as well, on balance i think it is wonderful, it is an advancement, but it comes with some consequences. >> rose: all right, privacy is one issue we al we ought to adds

more of. >> i totally agree with all of what ken just said, the behavioral changes are so vast and the issues of privacy we can't afford in the to examine it and frankly governments should be examining it, these are big changes that are happening so quickly we haven't figured out what they all mean, so will there is absolutely good, absolute huge reasons to be examining the social and political and regulatory implications of all of this stuff, especially facebook. >> rose: davidness before leave, tell me what is going on at the consumer electronics conference, what is the buzz? >> well, you know, it is honestly not nearly as exciting to me as some of the things that are happening in the internet toshs me the most important consumer electronic device of the recent times is facebook's -- i mean microsoft's connect products which is this amazing way to read your movements that has huge implications for all kinds of new products that we are going to see in the future. but everything does have a social and mobile component

here, there is no tv on this entire floor, really, that is being demonstrated doesn't have some kind of interface that allows you to connect to the internet and get facebook and twitter and search on google and many of the interfaces are terrible, the software, this industry in general, the hardware, consumer electronics industry has always been bad with software so there are not too many exceptions to that, but i will say, the enthusiasm is big, it is a very strong economic statement that there are so many people here and such a buzz, you know, i heard there are 85,000 last year, something like 125,000 this year, so it for tends well for the economy and the electronics business, that is for sure. >> rose: much talk about tablets? >> yes, there are tons of tablets, michael had a figure of how many are here, what is the must be? >> my understanding is 75 new models being introduced to ces right now. tablets. >> rose: and android is doing well, i hear, in europe and other places.

>> almost all of the really cool tablets here are android but certainly none of them use the apple software, because apple is notably absent as is often remarked upon but tons of people have products that work with apple products, and even now when i am looking at really cool stuff from says samsung, a bunch of cool stuff i am asking how does this work with the mac? because the mac is starting to take off in business, the apple section are so massive in so many arenas all of these companies have to factor that in, they don't like that they have to. >> rose: i am out of time, david kirkpatrick, the book is called the facebook effect and i don't remember the rest of the title, but what is the rest of the title, david? >> what is the rest of the title. >> inside story of the company that is connecting the world. thank you so much for having me. >> rose: david also writes for the daily beast, ken auletta writes for new yorker magazine and wrote google which is now in paperback. and michael malone, who has been a guest of mine not only on the program but also business week for the column at bloomberg

business we can has written well about hewlett packard and the titles i cannot remember but michael tell me what they are. >> bill and dave, who is a biographer of hewlett packard but more appropriate to this the future arrived yesterday which is about the new types of corporations, protean corporations. >> rose: thank you all, fascinating. we will be right back. >> thank you, charlie. >> rose: stay with us. we look at this week in politics with bryan williams, he is anchoring and manager for nbc nightly news and interviewed john boehner the new speaker of the house and joins me from nbc studios in new york i am pleased to have him back on this ram because i know he got up with morning joe and now he is going to bed with charlie rose:wow, how many americans can make that claim? perhaps we shouldn't go there, charles. >> rose: programs not. the two big personalities on the stage this washington this week, one, president of the united states, because he makes staff

changes, the second, a man who took the gavel and you had the conversation that we are all talking about. tell me -- tell me about him. >> first thing he wants you to know about himself is that he is the same guy, and when he says that, he is really rewinding to ohio. he is 61, he is one of 12 kids, been married just under four years -- 40 years, growing up boehner meant 12 in one house and i think six through the back with regard at the uncle's house, so there was never any shortage of kids, grass never grew in their backyard, catholic family, he is still a devout, mass going catholic, and his wife famously said in an interview this week, when it came time to meet the queen of england at a state dinner she spent all of $100 on a dress. again, ten terms so he is very much a product of the house, just as he is a product of blue collar roots in ohio, and the american people now get to judge

this speaker of the house, known as a compromise sorry, i had a member, democratic member of the senate on the phone today speaking very highly about john boehner, as you keep hearing he keeps his word in an old school fashion, and he is, quote, a man we can do business with, that is what you hear from the other side of the aisle, the problems may be on the boehner's own side of the aisle with the tea party members. >> rose: any indication of how he will handle them? >> well, i think it will be a bit like herding cats like any house speak we are just a disparate body, some of them have come to washington having pledged all kinds of things back home, john boehner, as a member of the house, knows what it is like to report back to the folks at home a in his district. he has done so, and they keep sending him back, but this will be gas make to watch when the real business of the house comes down the pike. >> rose: he is a guy who says i am still me. >> yeah, and he says about

things like smoking. about things like his now famous emotions, that folks like david letterman are just putting the golf ball on the tee every night and smacking it 400 yards. >> rose: yes. >> this is all some americans know about john boehner about that aspect he says it is what it is, it is unchangeable. it is a part of him, and, you know, we are just going to have a speaker of the house who is not just a casual smoker, as the president has been rumored to be, but a fairly devoted smoker. >> rose: there is also this image that he is a man who knows a lot of lobbyists and a man who likes to play a lot of golf and he is a man who has a perpetual tan. >> yeah, that's right, al all ot correct he can comes to all of it and on the lobbyists he will point out when you ask him that they are a part of the process that need to be listened to, that the private sector has a lot of lessons to teach the public sector. so, again, in our jobs, you and i get to call balls and strikes,

it is the american people that he talks about incessantly these days who bet to judge the success or failure of their new speaker of the house. >> rose: you do not get to be speaker of the house without brains and ambition and other skills. what are they? >> well, as you know, he has been an his first ever vote in the house, charlie, was for gulf war 1, and he thought how can it not be downhill concerning a high moment from here on? he was a member of the team during gingrich, he watched what happened to newt gingrich and watched what happened to his own power. he fell decidely out of power, but i think it is that -- what this democratic senator mentioned to me today. it is the keeping of his word, and it is kind of the old school qualities, he served with some pros, he watched some of the very best like bob michael, he was even able to be around and watch tip o'neill at the job, so

i think it is the old school side of john boehner in a decidely new schoolhouse of representatives. >> rose: but he has had his eye on the job? >> oh, i think cheerily as you say. you don't get there, you don't fall into these jobs by accident. he paid his dues, came up as leader, did a good enough job that really there was no substantial challenge. we saw nancy pelosi get kind of a protest vote on her way to be voted in as democratic leader. >> rose: and what does he think of president obama? >> that is a very interesting relationship there, and i asked him that as i have in an off the record circumstance, i asked him on the record, you get the sense that he thinks that the two of them could get along the more time they spend, and i can report that some democrats have been counseling president obama, whether their advice will be followed or not, is up to the president, to try to reach out and spend more time with john

boehner, who has mentioned that they are both golfers, mentioned to lesley stahl he thinks he is a better golfer perhaps than the president is. these are both young men in washington at the, perhaps at the pinnacle of their political power, i think john boehner has to be declared the most powerful national republican at least during this day as we have this conversation. >> rose: and perhaps as a lesson to be learned from tip o'neill and ronald reagan? >> oh, that is absolutely right. their famous after-hours tipping back, hoisting one or two, but fighting like cats and dogs as business dictated during the day. >> rose: bryan williams, thanks for taking the time for us. >> . charlie, thank you, always a pleasure. >> rose: bryan williams, nbc nightly news, back in a moment, stay with us. >> rose: we look at today's job report, and other economic news, the economy created only 103,000 jobs in december, that

is less than the 150,000 that economists forecast, an below the 125,000 needed to keep up with population growth, however the unemployment rate from 9.8 percent to 9.4 percent the lowest level since may of 2009 and the biggest drop in more than a decade, speaking earlier today president obama addressed the mixed numbers. >> we know these numbers can bounce around from month-to-month, but the trend is clear. we saw 12 straight months of private sector job growth, that is the first time that has been true since 2006, the economy added 1.3 million jobs last year. and each quarter was stronger than the previous quarter, which means that the pace of hiring is beginning to pick up. we are also seeing more optimistic economic forecasts for the year ahead, in part due

to the package of tax cuts i signed last month, including a payroll tax cut for workers, and a series of tax cuts to encourage investment and invasion and hiring innovation and hiring. >> rose: and ben bernanke talk about the economic recovery. >> more recently however which have seen increased evidence a self-sustaining recovery in consumer spending may be taking hold. in particular, real consumer spending rose at an annual rate of 2 percent and the available indicators that it likely expanded at a slightly higher pace in the fourth quarter. business investment in new equipment and software has grown robustly in the last quarter the at a low level as they replace aging equipment that wasn't during the downturn. however the housing sector is depressed as inventory weighs on

home prices and construction an nonresidential construction is also quite weak. overall, the pace of economic rekoff recovery cease is likely to be moderately stronger in 2011 than it was in 2010. >> rose: joining me from washington, pearlstein from the washington post i am pleased to have him back on this program, welcome. >> thank you, charlie. >> rose: so we are in the midst of recovery, according to the chairman of the federal reserve? >> well, technically, we have been in recovery for a while but i think i agree with mr. boerne that we are in the midst of a self-sustaining recovery now that has probably only be been true for the last couple of months .. and things are finally looking up, w we have a a long y to go as the president says said but a chance of a double dip right now i think is pretty low, we have some momentum and larry summers who just left the white house as the president's top economic advisor talks about escape velocity, i think we

probably are just about to get it. >> rose: and do we need anything else to stimulate the economy? >> we need patience and we are going to need a fair amount still of structural change in the my to go on, and it is for that reason that mr. boerne and, bernie madoff, ben bernanke, that is why it is going to take us a why to get back to five to six percent unemployment. by structural change i mean more than just having a lot more demand .. we have job openings without people that can fill them, and we have people who have skills or a are living in places to work where they are going to have to move and get new skills to meet the job needs of the future. we have too many companies in some industries and not must have in other industries. we have a lot of industries that are miss priced still. what they charge for their products or what the labor rates are not consistent with what the market demands and until those

things change and they do change slowly, we really can't get back into the kind of equilibrium we need in order to have robust growth. >> rose: to get to five or six percent unemployment in five or six years, we have to grow at what rate? >> we are going to need three to four percent growth rate, which is probably as much as we are going to be able to get going for the next, you know, intermediate period, and that is why it is going to take so long, often when you come out of a deep recession of a cyclical sort, the kind that we sort of, manufacturing recessions we had 20, 30 years ago, you can get five, six, seven percent growth rate coming out of that, and that is why we were able to create jobs much faster. that is not going to happen, because it is not that kind of recession we have been through, it has been a financially driven recession and it also is a recession that is coming during a period in which the huge structural changes are going on in the global economy, a lot of work is going overseas to places

like india and china, and we have great opportunity here to meet some of the needs of those growing markets but we need to have the right companies producing the right products and services in order to take advantage of that, and right now, that is not the case. >> rose: okay, but elaborate on that, because i mean, the dynamic factor in terms of the global economy is the increase in the demand and buying powers in emerging nations we all know that, and what doe what does thn for american companies and what kind of products do they have to manufacture to serve that market? >> well, it is not just products manufactured, it is also service. >> rose: services, okay. >> but we have to have the kind of products that the, at the kinds of prices they need and we need our currency to go back to an old point to be valued a little bit lower so that our products and services can be competitive, and then we can export some more, right now as you know we have the huge trade deficit and that is not

sustainable over the long run and we need to export more. we are not going to import a whole lot less, the stuff that we import now, charlie, is not stuff we generally make. >> rose: right. >> we have to export more and there is a drogue world out there to export to, but we have to export the right products at the right price with the right exchange rate. >> rose: but i mean big companies like, you know, the bottling companies, they look at the emerging nations growing middle class, as a bonanza for them in terms of a future market. >> well, you have mentioned bottling companies, those are companies that produce where they sell, it is true here, by the way. >> rose: right, right. >> they also produce what they sell, you have to do that there, but you have made an interesting point about big multinational companies, which is something that it is hard for americans and even economists to adapt to, which is that big multinational companies going forward in the next few years are going to do great, they are going to make a lot of money, they already have

a lot of money and they are already very profitable but that is not going to translate into jobs in the united states. there is a disconnect between large corporate business sector that is based in the united states and the u.s. economy, there is a disconnect now. >> rose: right. >> it is never coming back, those companies will do well when the world does well, they won't do well when the world is doing badly, we have to generate now more export companies, not just large corporations, but mid size companies, you know, our model ought to be germany, where the engine of growth in germany are the mid sized family owned export companies, and those have got to be, not necessarily family owned, but mid size, export companies are where our future is. >> rose: what is it that they export? >> they export generally precision machinery. we will probably export video games, software, financial

services, insurance, entertainment, media, you and me, charlie. >> rose: what do you read from the numbers that just came out today? >> i wouldn't read too much into my one month's numbers. people were disappointed, the truth is, as they have been for the last several months, these numbers will be revised upward and frankly it will be around one it thousand a month, which is where things have been running in the last quarter. 150,000 jobs generated by the private sector but we are losing 10,000 jobs a month in state and local governments maybe we are going to start to lose some in the federal government as well, but that is generally what we have been producing and i think we will continue to do that and maybe that will continue to go upward, but not dramatically, we are going to be at 150 to 250,000 for the next couple of years. >> rose: does this country have or does it need what some people call an industry policy? >> we need an export policy, and part of that is an industrial

policy, we have to, i think, collectively put our eggs in a few baskets, make some necessary investments there in terms of infrastructure, in terms of education and training, maybe in terms of a little subsidy, you know, we are competing against countries around the world, charlie that heavily subsidize select industries, they are very good at industrial policy, the chinese are great at it, for example. >> rose: and the japanese were fantastic at it for a while? >> they were. and there is a danger to doing too much of it, as we learned from japan, but to say that it doesn't work, particularly over the short and medium term is wrong and whether we like it or not, that is the way they play the competitive game, and we have got to get a little better at playing it and not be so ideological to say well this is against the way we do business. we don't have to go all the way the way the chinese do it, i mean that is still a communist country and a planned economy

but already some things we can do to prime the pump of some industries that clearly have export potential and that need a little investment or need training help and educational help, so we need to think a little more creatively about that, particularly in the industrial midwest as you point out where we have a lot of skilled workers who don't have a job. >> rose: what is the risk of a trade war? >> i think the risk of a trade war is pretty low, charlie. people talk about it a lot, people fret about it, alan greenspan used to, you know, fret about it in congressional al testimony regularly for years, and it just hasn't happened, the world doesn't want it to happen. we are too interconnected, yes there will be frictions, but i don't see the likelihood of an all-out trade war being very high, for one thing, china is a country that can't afford a worldwide trade war, they are too trade dependent and there are other countries that are in

the developing world like india and brazil that i think will be very constructive in trying to create new trade agreements and new trade understandings. they also don't want trade wars, and they are much more sympathetic to our situation, for example, as it relates to china and its currency, they are also suffering from china's undervalued currency and they want some relief on that, so i think the world is moving in a positive direction and i wouldn't worry that much about a trade war. >> rose: the idea of creating jobs, what have we not done that we might have done and, therefore, must do? >> well, what we haven't done mostly is invest in the kind of education and infrastructure that are necessary to provide the foundation for the growth industries, and particularly the growing export industries of the future. i will give you just an example

that was in the time magazine article and a very good one, general electric after years of getting out of the appliance business is getting back into the appliance business here in the united states, and the kinds of appliances they are going to do are very energy efficient and they are also smart appliances, that they are going to be hooked up all the time to the internet and to telephone systems, but because they are going to be able to communicate with each other and with you. well, in order to do that you need smart electric grids, and we don't have mart electric grids in this country. >> rose: right. >> and if we had been using this period over the last few years, when we could borrow money cheaply and had lots of unimloimd, unemployed engineers and workers to really build a smart grid that would have been the smart thing to do but we didn't and we have to ge get tot now. that is just one example of where you need the infrastructure in order to get the innovative industries going. >> rose: do we have the political will and the present

-- in the present political environment? >> not clear, charlie, right thousand we are so focused on cutting spending rather than what we should be focused on, which is long-term investment, and investment means spending, but it is a spending of a different kind. it is spending that has good, long-term returns, it is not spending to give someone income support, it is spending in ways that create the foundation for innovation and growth and private investment. it is public investment that leads to private investment. >> rose: but that is part of the dilemma of the stimulus bill, wasn't it? i mean they couldn't find an investment that was good for the long-term but would create instant jobs. >> well, there is a dilemma, so what do you do? do you create instant jobs or do you make long-term investments? they did a little of one and a little of the other. what i would have preferred and i think i said so on this show is a lot more posed during that period. >> rose: right, you did. >> on the long-term investment, although it doesn't create as many short-term jobs if you want to create short-term jobs you

create 15,000, $20,000 a year jobs that people are digging holes in the ground but if you can create jobs that way but they, but they go away as soon as the money goes away and it would have been a better use of our money to focus more, i think on creating long-term jobs, some of which, you know, some of which are construction jobs, there is no doubt about it but a lot of them are not low -- are not a low wage jobs, they are high wage jobs. >> are you surprised by the way some people reacted to the deficit commission report, including members of the commission? >> i think it was very encouraging that we had two conservative republican senators on that commission that voted with the final report. we have had the democratic leader of the senate also, deputy leader of the senate also voting in favor. there were a few disappointments, but, really, i think what you will see in the coming weeks is that the president will submit a budget that follows in many respect it is recommendation of that

commission, and we will see whether the republican leadership can follow along with it, but i think we have some momentum here for long-term deficit reduction. one of the things that one of the members of the commission who actually did not vote for it said, andy stern, who was a labor leader said i would have voted for all of the cuts what i was concerned about is that there was too much attention to the budget deficit and not enough attention to the investment deficit, and we should raise tax as little more than the commission recommended not so we can go have a party or do -- or give people money, so we can invest in exactly the sort of things i just spoke about for the future. and he is probably right about that and you might see the president picking up that line when he submits his budget. >> rose: and so what do you think happens to the extension of the bush tax cuts after two years? >> well, i think that that issue will go away, charlie, because it will be subsumed into a larger issue of tax reform, and

tax reform means getting rid of a lot of tax deductions, tax credits, tax loopholes, in order to lower the rates, well, once you start sort of changing all of the furniture it is hear to say well what is the bush tax cut? we were arguing about whether upper end tax cuts are 35-point or 39. 39.5 well if yoo tax reform the top rate may be 28 percent because you got rid of all of these deductions, that doesn't mean everyone's taxes will go down, taxes in fact may go up, it deptds on how much they use deductions and credits and how much they don't but it will sort of change the question so we won't be arguing, happily we won't argue about the tax bush cuts anymore. >> rose: the president seems to me to be open to the idea of the reduction of corporate tax. >> he is open to the idea of corporate tax reduction as is everybody, frankly, and everyone is open to the idea of tax reform, i mean, there is consensus on that, the only thing there is not consensus on

is the republicans saying we want tax reform that raises no more money than we raise now. the president and the democrats say, we want tax reform, but we need it to raise a little more money than we have raised now as part of the effort of deficit reduction which will also include spending cuts. and that is the only difference, really, there is consensus around simplification and tax reform. >> rose: is that a big idea that the president can address in the next two years? >> well, he is going to address it in a few weeks in his state of the union and i think you will find that the republicans are very anxious to move ahead on it. you know, republicans have been talking about this for a long time too when they talk about, you know, the flat tax or the tax return on the postcard. >> rose: right. >> they have been doing this for a long time and the democrats have favored it too, it is actually something that both parties agree with, the problem is once you do it and as time goes on all of the special interests come along and they get the tax deductions and the credits added in so the rates have to go in so we have to do

this every 20 years. >> is the value-added tax part of the mix? >> it is not clear, the republicans have opposed it on principle because they don't like my new tax, what will be required, if you want to do this, and i think it is a good idea is the business community will have to speak up in favorite favor of using the value-added tax and instituting it in order to lower other tacks and the reason the business community wants this is because value-added taxes actually can be rebated on exports, every other country in the world use as value-added tax, they rebate it to their exporters and it is one of the reasons that we are at a disadvantage in the global, competent difference, competitiveness arena, because we don't have that type of cost structure so our manufacturers and other companies, their costs are disadvantaged in global competitiveness .. so if the business community would step forward and say let's raise that tax and lower some others, maybe the republican party will come around to that. >> rose: and finally, there is

coming up a question of a ceiling, a limit on the debt ceiling. >> that is a big problem, and the republicans are playing with fire with that. if they think that they can use the debt ceiling to play a game of chicken with the president on sort of short-term budget cutting, i think they will find that the financial community will not -- and the financial markets will not like that. it is not a good idea to do that, and if they are going to play that game, and the president sticks to his guns and says, look, i just want a simple debt ceiling increase, i think you will find the markets will be royaled and the republicans will realize it is not a good strategy. >> rose: it is great to see you in the new year, thank you for joining us. >> thanks for having me, charlie, happy new year to you. >> rose: as well. thank you for joining us. we will see you next time.

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